Tax obligations of foreign enterprises for cloud computing services in Vietnam

The tax picture for cloud computing services provided across borders is changing drastically in Vietnam. From mid-2025, Vietnam has markedly shifted to the principle of taxation according to the place of consumption, and at the same time strengthened management with digital services through two mechanisms: (1) Foreign suppliers self-register – declare – pay taxes directly on the tax authority's web portal; and (2) deduction,  submitted on behalf of the buyer, digital platform or payment intermediary organization in Vietnam.

This is a big change and different from the traditional understanding that changes the obligations of foreign enterprises doing cloud computing services in Vietnam.

New legal framework regulates cloud computing services

The Telecommunications Law 2023 defines "Cloud Computing" as a model that allows convenient, on-demand access to shared computing resources (networks, servers, storage, applications, etc.); and "Cloud computing service" means a telecommunications service that provides information processing, storage and retrieval features for users via telecommunications network through cloud computing.

This definition is the basis for tax authorities to "anchor" cloud computing services to the group of telecommunications services, instead of only considering them as "software services" as before. In its recent reply to the Tax Department's response to Microsoft's cloud computing services, Regional Sales Pte Ltd (Singapore) affirmed that cloud computing services are defined as telecommunications services and are subject to 10% VAT from July 1, 2025 [1].

In addition, the VAT Law 2024[2] stipulates a tax rate of 10% for goods and services that are not in the 0% or 5% group, and clearly expands the scope of application to services provided by foreign suppliers without permanent establishments to organizations/individuals in Vietnam through e-commerce channels or digital platforms. Along with the Law on CIT 2025 and Decree 320/2025/ND-CP, "e-commerce platforms/digital platforms" are considered as permanent establishments. This is a big change and different from the traditional understanding that changes the obligations of foreign enterprises doing cloud computing services in Vietnam.

Classification of services and tax consequences

Practical cloud computing services are generally divided into three main classes: (i) IaaS (Infrastructure as a Service): which provides virtual server, storage, and network infrastructure resources. (ii) PaaS (Platform as a Service): provides an application deployment environment, including programming tools, databases, and operating systems, without the need to manage the platform infrastructure. (iii) SaaS (Software as a Service): provides access to ready-to-use application software via the internet, such as Google Workspace, Microsoft 365. The provider manages the entire infrastructure and applications.

The contract usually comes with management services, security, technical support, telecommunications lines or even the right to use the software (license). It is this "accompanying" component that determines the type of tax that businesses must bear for each type of business.

The largest gray area still exists between "software services" and "telecommunications/cloud services." The new guidance does not completely negate the copyright component, but prioritizes identification according to specialized laws. Enterprises consider and determine the right type of services that their company is providing to determine their corresponding tax obligations.

Regarding CIT/contractor tax, the criterion of distinguishing between "services" or "royalties" is still very important. Because for pure services, the CIT rate is 5% of revenue. As for royalties, the CIT rate is 10% of the revenue, applied when the contract specifies the grant of royalties and allows installation/download, or separate royalties.

The risk of "being pushed to copyright" increases if the contract uses the terms "license", "intellectual property rights", or the customer has the right to exploit it independently. In contrast, the contract clearly describes "access services on the provider's platform". That is, the company operates, customers only use it via the internet, this case will be considered a service.

Specific tax obligations

VAT

From July 1, 2025, the VAT rate is 10% if it is a telecommunications service. Foreign suppliers self-declare according to regulations. In case of deduction and payment on behalf of the customer, it is applied when purchasing via digital platforms or through payment intermediaries, or traditional contractor contracts.

In order to be eligible for VAT deduction, enterprises must have a valid state budget payment voucher (a voucher paid on behalf of the enterprise) or a valid invoice.

CIT/contractor tax

In case the enterprise does not have a permanent establishment in Vietnam, the percentage of revenue including 5% of services and 10% of copyright shall be applied. In contrast, enterprises with permanent residence in Vietnam are calculated CIT according to the full method, which means that CIT will be based on revenue minus expenses.

Impact of the Double Taxation Avoidance Agreement

Many cloud service providers from the US, Singapore, EU... can invoke the Double Taxation Avoidance Agreement to affirm that income is "corporate profit" and is not subject to CIT if there is no permanent residence under the Agreement. However, Vietnam can apply stricter internal laws in the direction of digital platforms corresponding to the case of not having a permanent establishment in Vietnam. To be exempted/reduced, the supplier must submit a complete dossier as prescribed.

PIT and other taxes

It only arises when a foreign individual comes to Vietnam to perform services (deployment, training). Excise tax does not apply to pure cloud services.

Source: Business Times

Risks for foreign businesses

Firstly, there is a classification conflict between "software services" (not subject to VAT as before) and "telecommunications services" (new 10% VAT). Many Vietnamese businesses are still applying the old calculation method, leading to the risk of large arrears from July 1, 2025.

Second, overlapping tax collection mechanisms. There are cases where the supplier pays by itself according to Circular 80 and the Vietnamese party/deduction platform pays again according to Decree 181. However, current documents do not clearly stipulate the mechanism of "avoiding duplicate payment", as well as handling in case of duplicate submission creating the risk of overpayment or lack of deduction documents.

Thirdly, the risk in identifying enterprises with permanent establishments in Vietnam. According to current regulations, a "digital platform" can establish a business/branch in Vietnam even if there is no physical server in Vietnam. This creates a gray area with many different interpretations stipulating that "without a permanent establishment, they are only subject to a percentage deduction", and at the same time complicates the application of the Double Taxation Avoidance Agreement to which Vietnam is a member.

Recommendations for businesses

To minimize risks, foreign enterprises and Vietnamese customers should clearly and accurately understand the nature of the contract. Businesses should analyze each component of their services, whether it is pure SaaS, licenses, lines, support, or other services. Preferred to describe the contract as a "platform access service" rather than software licensing. Besides, businesses should choose the right compliance model. If the revenue is large and stable, the enterprise should register and self-declare according to regulations. If the transaction is small or through the platform, the business can ask the buyer/platform for a deduction. In addition, businesses can also consider combining both methods as needed.

Note that, (1) the standardization of documents by requesting suppliers to issue detailed receipts, coordinating to reconcile documents for state budget remittance, applying the gross tax calculation method when necessary. (2) Prepare the Agreement dossier to be exempted from CIT under the Double Taxation Avoidance Agreement. The documents must have a full consular legalization from the beginning. (3) Consultation with experts/industry management agencies is very necessary to clearly and accurately determine the tax obligations corresponding to the activities of the enterprise before declaring and paying tax at the tax management agency of Vietnam.

Currently, the tax obligations of foreign enterprises providing cloud computing services in Vietnam are no longer a "gray area" as before. With the clear identification of telecommunications services, the application of new VAT rates, the expansion of deductions and the expansion of the definition of permanent establishments including digital platforms, Vietnam has created a strict, fair and consistent legal framework with the global digital economy trend. Foreign businesses and Vietnamese customers cannot continue to apply the old calculation method. This new, prudent approach to tax liabilities not only helps businesses avoid arrears but also creates a long-term competitive advantage in the Vietnamese market, which is growing strongly in cloud computing services.